Ottawa urged to match Quebec’s $1B Bombardier bailout

Quebec plans to ask Canada’s federal government to match the province’s $1 billion investment in Bombardier.

Quebec leaders have championed Bombardier because of the company’s central role in the province, and the package also includes a potential equity investment of as much as $442 million. (PASCAL ROSSIGNOL / REUTERS FILE PHOTO)

A day after Quebec came up with a $1 billion (U.S.) commitment to prop up Bombardier’s struggling CSeries jet program, its economy minister has called on Ottawa to match the money.

“If the federal government comes in, the notion of risk completely changes,” Jacques Daoust told Bloomberg News on Friday. “If the federal government also put in $1 billion that would mean the CSeries financing package would be complete.”

Daoust noted that during the last recession, Ottawa joined with Ontario with billions for General Motors and Chrysler as they were struggling to survive.

However, some analysts are questioning whether investment dollars are enough to save the CSeries program, given the company has only 243 firm orders for the plane. It hasn’t landed an order in more than a year.

With Justin Trudeau, who represents the Montreal riding of Papineau, set to become prime minister next Wednesday, Daoust said he intends to call whoever is appointed industry minister immediately after the swearing-in ceremony.

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The Liberals would only say they are studying the situation with Bombardier.

But insiders say the new government, which received an unexpectedly strong vote in Quebec on Oct. 19, may feel compelled to contribute some funding—perhaps in the form of a repayable loan—to the company, which is an emblem of the province's industry.

“On the Bombardier issue, we are in the process of being briefed on the file, are following it closely, and a decision‎ will be made after the government is sworn-in on Nov. 4th,” a Liberal spokesperson said Friday.

Bombardier spokeswoman Isabelle Rondeau declined to comment on Quebec’s request for help from Ottawa, and as well as whether the company has previously approached the federal government for assistance.

Rondeau would only say “we have regular discussions with the government on many things including the CSeries.”

Bombardier has been struggling to get the new aircraft program off the ground. It has been faced with a huge cost, long delays, cost overruns and few orders from major airlines for the largest aircraft it has ever made.

The company took a $3.2 billion charge on Thursday as it reported its earnings. That is signaling it doesn’t expect to recoup the money it has spent to develop the jet which is scheduled to enter commercial service next year.

Even with the $1 billion from, Bombardier says it won’t turn a profit on that jet until 2020 or 2021 at the earliest, and expects it will still need to spend an additional $2 billion.

As part of the deal, Quebec takes a 49.5 per cent interest in a joint venture for the CSeries, and Bombardier has committed to keep CSeries-related work, including manufacturing in Quebec.

Bombardier, which makes both planes and trains, has 17,750 employees in Quebec and 6,350 in Ontario.

Analysts have suggested that uncertainty in the program could be hurting sales. But the Quebec government’s backing is seen as a way to help stabilize fears.

“Liquidity needs (at least for now) have been addressed, and while CSeries' sales risk remains elevated, we believe the Quebec government backing will help to reignite the sales cycle,” said RBC Capital Markets analyst Walter Spracklin in a note to investors.

Quebec is also poised to become the largest holder of the Class B stock, with warrants to purchase as many as 200 million shares for $2.21 each over the next five years.

Shares closed at $1.40, up 3 cents on Friday. Bombardier is the worst performing industrial stock on the TSX this year, down more than 66 per cent.

The Toronto Transit Commission is also at its wits end with slow delivery of its $1.2 billion order for 204 Bombardier streetcars, first placed in 2009.

Originally, the TTC expected to have 73 in use by the end of year, but right now there are only 10 on two routes. The schedule was later revised to 20 by year’s end, and now Bombardier says it can’t meet that target either.

Quebec leaders have championed Bombardier because of the company’s central role in the province, especially the aerospace sector. Daoust said the federal government needs to act, too, as it did in helping bail out General Motors and Chrysler as part of their 2009 bankruptcies.

“We are going to ask them to support the aerospace industry in Quebec the same way they backed the auto industry in Ontario when times were difficult,” Daoust said. “This will be a profitable transaction for everybody.”

In 2009, the federal and Ontario governments invested roughly $10.8 billion in GM, both in the U.S. parent company and the Canadian operations, according to Finance Canada documents.

Over the years, Ottawa and Queen’s Park sold their stakes – with Ottawa unloading its remaining shares in GM for about $3.26 billion on the eve of April budget, according to a filing with the U.S. securities regulator.

Both governments also invested in Chrysler, but those loans and shares, which originally cost $2.9 billion, were repaid earlier.

York University business professor Fred Lazar says he wasn’t surprised by Quebec’s investment, adding either the government would step in or indirectly through the Caisse de dépôt et placement du Québec, which manages the province’s pensions.

“They will not let Bombardier go down,” Lazar said. “It essentially buys some time and there will be jobs associated with the CSeries in Quebec saved.”

But long term, it’s questionable how long those jobs can be saved, if there aren’t aircraft orders, he said.

“If this company were in any other province in this country, or in the United States, it would have been sold and dismantled a long time ago.”